After laying off hundreds of employees last week, ConocoPhillips (NYSE:COP) is now close to offloading its full stake in an oil and gas production sharing block off the northwest coast of Borneo island. Through these measures, the company is trying to bolster its balance sheet position by with the help of an improved cash flow position and a decreasing debt burden.
Commodity Market Downturn: ConocoPhillips’ Latest Measures
At the end of the three-month period ended June 30, the Texas-based oil and gas company had cash and cash equivalents of $2.86 billion, compared to long-term debt of around $27.35 billion. As commodity prices are expected to remain lower at least in the near future, the company’s liquidity position is projected to worsen further.
To improve its profitability and cash position, ConocoPhillips is resorting to several cost-saving measures. Last week, the company announced laying off around 250–300 workers in Calgary, Canada and almost 90 employees in Bartlesville, Oklahoma. The company aims to save to lower its operating cost through these cost cuts.
On Friday, Reuters reported citing three sources familiar with the matter that the energy company might also sell its entire 40% stake in the production block in the Natuna Sea to Indonesia-based PT Medco Energi Tbk. According to Indonesian energy regulatory body, the block is projected to produce 195.7 million standard cubic feet of gas per day (mcf/d) and more than 19,000 barrels of crude oil per day (bpd) this year.
In December 2015, the Houston-based company indicated its intention of offloading its stake in the South Natuna Sea Block B. Chevron and Japan-based Inpex Corp. are also the partners in the project, with 25% and 35% ownership, respectively.
In a low oil environment, energy companies including ConocoPhillips are divesting their stake in non-core assets as they plan to focus more on their core oil and gas assets. Though the value of the deal has not yet been determined, we believe the agreement could help the company reduce its debt burden by millions of dollars.
Earlier this year, the expected buyer of ConocoPhillips’ oil production block, Medco Energi, also purchased the country’s second-leading copper and gold mining company, Newmont Nusa Tenggara. The company is now expected to announce the agreement with ConocoPhillips soon.
As the global crude oil market conditions are not likely to stabilize in the coming quarters, oil and gas companies are continuously adopting measures to improve their financial position. The companies are lowering their operating costs, suspending, and delaying major energy projects and are putting a number of assets on sale, as they aim to enhance their profitability, asset base, and balance sheet position.
ConocoPhillips is also likely to continue with these measures. The company aims to divest $1 billion worth of assets this year as low oil prices have severely dented its financial performance. The company is in dire need of cash to pay off its liabilities and improve its cost structure.